Hospitals Wary Of Humana Bid

Health Officials Watch Impact Of Michael Reese Sale

October 12, 1990|By Jean Latz Griffin, Public health writer.

The bid by Humana Inc., to buy Michael Reese Health Plan and its financially ailing hospital is likely to have far-reaching and long-lasting effects on the volatile health-care industry in Chicago and its suburbs, health care experts say.

If Humana completes the purchase of Reese and follows the pattern it has perfected elsewhere, it will later try to buy more of Illinois` 30 health maintenance organizations and a few strategically located community hospitals, including some in the suburbs, the experts predict.

Such acquisitions would increase Humana`s geographic reach and develop the synergies here that have made it one of the largest and most profitable commercial health care chains in the nation, with revenues of $4 billion and a profit of $225 million in 1989.

In addition, because of Humana`s good record in providing health care to indigent patients in other locales, some industry watchers downplay the fears of community activists that it will abandon Reese`s commitment to serving the poor.

Reese and Humana are in a 60-day study period that began when the two entities signed a letter of intent on Oct. 1 for Humana to buy Michael Reese`s health care plan and hospital.

For the deal to be completed, Humana must obtain a state operating license and approval of the Illinois Health Facilities Planning Board. Although no figures have been released, industry observers put the purchase price at between $55 million and $70 million.

If Humana expands its operations in the Chicago area beyond Reese, experts say, this would likely accelerate two trends already at work in Illinois-the winnowing out of smaller, struggling HMOs and the consolidation of free-standing hospitals into alliances.

Based on Humana`s past history, the hospitals it would consider for purchase would most likely be in areas where the Michael Reese HMO has clinics.

The HMO currently maintains clinics in 11 suburbs: Deerfield, Evanston, Burbank, Glenview, Naperville, North Riverside, Oak Park, Orland Park, Calumet City, Schaumburg and Downers Grove. It also operates nine clinics in Chicago: three in Beverly and one each in Lincoln Park, Hyde Park, West Rogers Park, Logan Square, the Loop and the Near South Side.

Humana vice president George Atkins said the firm had no immediate plans to buy additional hospitals in the Chicago market. But it is ``always looking for good, quality-managed care programs to purchase where it fits into our marketing strategy,`` he said.

Industry observers predict a two- to five-year shakeout period, in which HMOs, hospitals and health care systems in Illinois react to Humana`s moves.

Richard Krieg, executive director of the Institute for Metropolitan Affairs for Roosevelt University and a former acting Chicago health commissioner, predicts Humana will have a decisive role in Chicago simply because of its size.

``Very few groups could muster the financial muscle that Humana has,`` he explained. ``They are playing to win in a very volatile market. They are coming to put their stamp on Chicago, put roots down and prosper.``

Charles Francis, vice president of strategic planning for Evangelical Health System, which operates five hospitals in Downers Grove, Barrington, Oak Lawn and Chicago, said his hospital system will be watching Humana closely.

``Humana is a well-managed, well-capitalized organization that, over the long term, will be well-positioned to compete with other health-care systems, such as EHS,`` Francis said.

``I think they will be a strong competitor, but I believe there is enough room in this town for both of us,`` said Truman Esmond, head of Rush-Anchor HMO-which, like the Reese HMO, has been losing money for years.

``In a short period of time, they will probably announce new strategies and services-maybe some of the same ones we are developing.``

The Reese and Anchor HMOs are long-time rivals, the two largest ``staff models`` in Illinois, with the HMOs owning and operating their own clinics, rather than contracting with individual physicians.

Anchor lost $4.2 million in 1989, and $4.9 million in 1988. Michael Reese HMO lost $7 million in 1989, and $3 million the year before.